It is a growth story that, in many ways, mirrors that experienced by businesses when they first enter China. This does not apply to simple transactional business where an order is placed for 10,000 plastic office knick-knacks selected from a supplier’s catalogue.
This growth story applies to establishing long-term business development where trust is essential. Put simply, Chinese businesses do not trust Western businesses, so, like bamboo, it takes a long time for trust to grow. Building a business in or with China takes much more patience than we associate with business growth in Western markets.
Trust is earned, not given without proof. In Western business, trust is protected against failure with tightly written contracts. In one sense, the contract is written on the assumption that things will fail in the future. However, there is confidence that the contract protection will be upheld in a fair judicial system.
Fairness and objectivity are selling points for jurisdictions like Singapore, which is home to several international arbitration centres.
See also: Xi welcomes slew of world leaders as Trump fights with allies
Although things have improved in China, the older hesitancy persists. Chinese courts are notoriously difficult from a Western perspective. They are also notoriously difficult from a Chinese perspective. Your China partner is just as keen to avoid becoming entangled in the court system as you are.
The result is a much greater reliance on establishing personal trust, which takes time.
Western businesses are often very uncomfortable with the circularity of discussions. Western business discussions move from point A to B to C to D along a linear path that leads directly to a conclusion.
See also: China’s economy revs up despite war as growth tops forecasts
Chinese discussions will move from point A to B, then back to A, then to point C and then return to point B. This circularity, this process of confirmation and reconfirmation, takes place at the negotiating table and the meal table. It is a way of testing trust and sincerity. It is also a way to reduce the likelihood that agreements will end up in the Chinese court system, because trust comes from people, not paper.
These are the tangled roots that, like bamboo, provide the foundation for later spectacular growth. A good sustainable business takes time to take root in China, but when it does, the growth prospects are rapid. Patience beyond what is expected in Western business discussions is the key to long-term business survival.
Shanghai market outlook
The Shanghai Index has strongly rebounded above the resistance level near 3,900 and has continued in a classic Guppy Multiple Moving Average (GMMA) breakout. The immediate upside resistance target is near 4,100. The index spent several weeks hovering around this level, so this is most likely to become a significant barrier to further rises.
The rebound rally is defined by trend line B. The persistence of the rebound is confirmed if there is a pullback and rebound from the projected value of trend line B. This has not happened, leaving the rally vulnerable to a significant retreat.
A rally is an index rise from a single point. A trend is created after a pattern of rallies and retreats that provides three anchor points.
The projected trend line is near 3,965. A fall to this level is a significant retracement. However, a fall to near this level followed by a rebound would create a third anchor point for the trend line.
For more stories about where money flows, click here for Capital Section
The outlook suggests a continued move towards 4,100, followed by a sideways consolidation and retreat that tests the value of the uptrend line.
We noted last week that the short-term group of averages is separating, but the current degree of separation is small. This suggests that investors could quickly change their minds and join the emerging uptrend. This has developed.
This has become a classic GMMA breakout. The short-term group of averages is moving above the long-term GMMA. This shows exceptional optimism from traders. The long-term GMMA has quickly turned up. Proof of investors’ support comes when the long-term GMMA expands, as this shows investors have become strong buyers.
An index retreat to the lower edge of the long-term GMMA, or to the lower edge of the short-term GMMA, remains consistent with a continuation of this uptrend.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for Mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia China Business Council.
